California Court of Appeals, Fourth District, First Division
Filed Date 3/21/17 (unmodified version)
from a judgment of the Superior Court of San Diego County
Super. Ct. No. 37-2012-00057479- CU-BC-NC, Jacqueline M.
Stern, Judge. Reversed with directions.
Law Group, John L. Smaha, Kristen Marquis Fritz, and John
Paul Teague, for Defendant and Appellant.
Horwitz Armstrong, John R. Armstrong and Matthew S.
Henderson, for Plaintiffs and Respondents.
MODIFYING OPINION AND DENYING PETITION FOR REHEARING
petition for rehearing is DENIED.
ordered that the opinion filed on February 28, 2017 be
modified to add the following paragraphs beginning on page
25, immediately before the Conclusion:
we consider plaintiffs' contention that Kaplan waived his
right to appeal the judgment confirming the arbitration
award. Plaintiffs rely on the portion of the parties'
arbitration agreement stating the parties are "GIVING UP
ANY RIGHTS [THEY] MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY EXECUTING THIS AGREEMENT, EACH
PARTY HERETO IS GIVING UP ITS OR HIS JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL."
courts enforce contractual provisions waiving a party's
right to appeal a judgment on an arbitration award. (See
Guseinov v. Burns (2006) 145 Cal.App.4th 944, 952
(Guseinov); Pratt v. Gursey, Schneider &
Co. (2000) 80 Cal.App.4th 1105, 1108-1109
(Pratt).) But they do so only if this intent is
"clear and explicit." (Ruiz v. California State
Automobile Assn. Inter-Insurance Bureau (2013) 222
Cal.App.4th 596, 604; accord, Guseinov, at p. 952
["waiver should be clear and express"].)
read, the cited language of the parties' arbitration
agreement does not show Kaplan waived his right to appeal on
the limited judicial review grounds provided in the
arbitration statutes. "[G]enerally, a contract provision
stating that arbitration is 'non-appealable'
signifies that the parties to the contract may not appeal the
merits of the arbitration; not that the parties agree to
waive a right to appeal the... judgment confirming or
vacating the arbitration decision." (Southco, Inc.
v. Reell Precision Mfg. Corp. (3d Cir. 2009)331
Fed.Appx. 925, 927, italics omitted.) This principle applies
here. Although the parties unambiguously gave up their rights
to litigate the matter in a judicial forum, including their
judicial appellate rights, they did not explicitly
waive their rights to the limited judicial review provided
under the arbitration statutes, which encompass the right to
appeal a final judgment on these matters. (See § 1294.)
The waiver of "judicial rights to discovery and
appeal" is not sufficiently specific to waive the right
to challenge a judgment confirming an arbitration award.
(Capitalization omitted and italics added;see Guseinov,
supra, 145 Cal.App.4th at pp. 952-955 [no explicit
waiver of appellate rights to challenge judgment on
arbitration award where parties agreed only to "
'waive any right to appeal the arbitral award'
"]; Reisman v. Shahverdian (1984) 153
Cal.App.3d 1074, 1082, 1088-1089 (Reisman) [no
waiver of appellate rights to challenge judgment confirming
arbitration award under agreement that " 'once the
arbitrators have rendered an award, no appeal or further
proceeding will be possible' "].)
arbitration clause, the parties expressly agreed to
"have any dispute... decided by neutral arbitration as
provided under applicable law."(Capitalization
omitted; italics added.) Applicable law provides for limited
judicial review of arbitration awards through the statutory
confirmation/vacation procedures, and for the right to appeal
the ensuing judgment. (§§ 1285-1287.2, 1294.) By
agreeing to arbitrate their dispute under California law
without explicitly waiving their rights under this law, the
parties manifested their understanding that they had retained
their appellate rights to challenge the final judgment. (See
Guseinov, supra, 145 Cal.App.4th at pp. 954-955.)
reliance on Pratt, supra, 80 Cal.App.4th 1105is
misplaced. In Pratt, the parties stipulated
"the right to appeal from the arbitrator's award
or any judgment thereby entered or any order made is
expressly waived." (Id. at p. 1107,
italics added.) The Court of Appeal found this language
"constituted an express waiver of the right to secure
appellate review" (id. at p. 1108) because the
contractual provisions "involve[d] specific waiver of
the right to appeal 'any judgment' or
'any order' " (id. at p. 1111,
italics added). This type of explicit language was missing
here. As have other California courts, we decline to find a
forfeiture without the parties' express manifestation of
intent to waive their appellate rights to challenge a
judgment on an arbitration award. (See Guseinov,
supra, 145 Cal.App.4th at pp. 952-955; Reisman,
supra, 153 Cal.App.3d at pp. 1088-1089.)
is no change in the judgment.
Kaplan appeals from a judgment confirming a $30 million
arbitration award against him. Although the award does not
specify the nature of the damages, the parties agree a
substantial portion of the award consists of punitive
damages. The arbitrator issued the award after a hearing
which Kaplan elected not to attend. We conclude the judgment
must be reversed. The arbitrator exceeded his authority by
awarding punitive damages without adequate prior notice to
Kaplan, in violation of the parties' arbitration
agreement and fundamental procedural fairness principles.
matter arose when several investors (plaintiffs) sued Kaplan
and a limited liability company (referred to as Houston
LLC) alleging defendants breached
fiduciary duties pertaining to plaintiffs' investment in
a self-storage facility located in Texas. Plaintiffs sought
compensatory damages and declaratory relief, but did not seek
punitive damages. After the court granted defendants'
unopposed motion to compel the matter to private arbitration,
the arbitration hearing was stayed while Kaplan was
criminally prosecuted for his conduct in soliciting and
handling investments in self-storage facilities, including
the property at issue in plaintiffs' lawsuit.
Kaplan pled guilty to a wire fraud charge in the criminal
action but before his sentencing hearing, a telephonic
arbitration hearing was scheduled. The parties had about two
and one-half weeks' notice of the hearing date. On the
day before the hearing, plaintiffs emailed a brief
substantially increasing their original arbitration damages
claim and requesting punitive damages for the first time.
Defendants did not appear at the hearing. After the
telephonic hearing, the arbitrator awarded plaintiffs $30,
835, 152.57, without specifying the grounds or nature of the
award. Kaplan then requested that the arbitrator vacate or
modify the award, but the assigned arbitrator recused himself
from all further arbitration proceedings and the arbitration
administrator declined to reassign the case.
superior court, Kaplan moved to vacate the award, and
plaintiffs moved for an order confirming the award. The court
denied Kaplan's motion to vacate, and entered judgment of
$30, 835, 152.57 against defendants.
challenging the judgment on appeal, Kaplan recognizes courts
have limited authority to review arbitration awards, but
contends the court erred in confirming the award based on
several statutory exceptions to this rule. (See Code Civ.
Proc., § 1286.2, subd. (a)(1), (3), (4).) We agree with
one of these arguments. We determine the superior court erred
in entering judgment on the award because the arbitrator
"exceeded [his] powers" by issuing an award that
violated applicable arbitration rules and procedural fairness
principles. (§ 1286.2, subd. (a)(4).) Specifically, less
than 24 hours before the arbitration hearing, plaintiffs
notified Kaplan for the first time they were seeking punitive
damages. Plaintiffs did so by requesting punitive damages in
a late-filed arbitration brief attached to an email sent to
the arbitrator and copied to Kaplan (who was not represented
by counsel at the time). This notice violated the
parties' arbitration agreement because it was not
reasonably calculated to inform Kaplan of the punitive
damages claim and precluded a fair arbitration proceeding.
The notice defects were also compounded by other procedural
irregularities in the arbitration process. The arbitrator
acted beyond his authority.
applicable code section provides that when an arbitrator
issues an award beyond his authority and there is no basis to
correct the award without affecting the merits of the
decision, the arbitration award must be vacated. (§
1286.2, subd. (a)(4).) These circumstances occurred here.
Accordingly, we reverse the judgment confirming the award
against Kaplan, with directions for the superior court to
enter an order vacating the arbitration award as to Kaplan
and remanding the matter for a new arbitration hearing on
second defendant, Houston LLC, did not file a notice of
appeal or appear in this action, nor has any counsel appeared
on its behalf. Kaplan nonetheless seeks to assert arguments
on its behalf. We have no jurisdiction to consider these
arguments, and thus the judgment remains as to Houston LLC,
which is not a party to this appeal. (See Van Buerden
Ins. Services, Inc. v. Customized Worldwide Weather Ins.
Agency, Inc. (1997) 15 Cal.4th 51, 56; Caressa
Camille, Inc. v. Alcoholic Beverage Control Appeals Bd.
(2002) 99 Cal.App.4th 1094, 1102.)
AND PROCEDURAL SUMMARY
the legal issues involve procedural fairness of the
arbitration proceeding and the parties disagree about the
procedural facts leading to the arbitration hearing, it is
necessary that we set forth those facts in some detail. We
describe only the facts contained in the appellate record,
viewing those facts in the light most favorable to
September 2012, plaintiffs (individually and on behalf of
certain involuntary plaintiffs) sued Kaplan and Houston LLC
alleging these defendants breached duties in managing a
self-storage facility in which plaintiffs had invested
substantial funds. Plaintiffs alleged defendants engaged in
"schemes to redirect benefits intended to go to
Plaintiffs and [other] investors" and obtained
"unfair financial benefits." Based on these and
other allegations, plaintiffs asserted causes of action for
(1) breach of fiduciary duty; (2) aiding and abetting breach
of fiduciary duty; and (3) quiet title. On the first two
causes of action, plaintiffs sought "actual and
consequential damages in excess of $10, 000, 000.00 to be
proven at trial." There was no mention of punitive
damages in the complaint.
parties' contract contained an arbitration provision
requiring "binding arbitration" under American
Arbitration Association (AAA) rules, in which the parties
agreed to give up their rights to a "court or jury
trial" and to "discovery and appeal."
(Capitalization omitted.) Based on this provision, defendants
filed an unopposed motion to compel arbitration. In March
2013, the superior court ordered the matter to arbitration.
10 months later, in January 2014, plaintiffs submitted a
request to the AAA "to have a case opened...." In
the attached "CLAIM SUMMARY" form, plaintiffs
identified "[$]1, 000, 000.00" as the "Claim
Amount." In the "Claim Description, "
plaintiffs stated: "Plaintiffs base their claim as...
outlined in [their] complaint... which includes allegations
of fraud, breach of fiduciary duty and aiding and abetting.
For money damages Plaintiffs have reasonably incurred to
clear the cloud on Plaintiffs['] title to the Property
and to prevent the sale of the Property by Defendants and
such other damages to be proved at arbitration. Prejudgment
interest... at the applicable legal rate, for the costs of
suit herein [including] attorney fees, and any and all
penalty damages and ...